How to evaluate a product, from the perspective of an angel investor

I recently had the pleasure of speaking to a group of aspiring angel investors in Australia. The theme of the presentation was about evaluating products. During the discussion, we explored the different ways to assess a startup, ways to evaluate ideas and products, and some resources that can help you along the way.

lisa-enckell

Author

Lisa Enckell

Lisa coaches founders on go-to-market strategies, product development, fundraising and more. She's based in Singapore but work closely with Antler's portfolio companies and the team all over the world.

Previously, she was the VP of marketing at Wrapp, a social gifting startup based in San Francisco and Stockholm. Lisa is an active angel investor and is part of Antler's investment committee. She has invested in companies such as Sunrise, Clue, and Opbeat.

While uncertainty is prevalent in early-stage investing, a careful assessment can pay off with outsized returns. With that being said, here's a look at what was discussed, and things to think about as an angel investor sizing up your next investment opportunity.

Consider the risk/return profile of angel investing

First of all, angel investing is a very risky business. Only invest the money you don't need. Most startups fail. On average it takes six years to build a unicorn. So, if you get lucky and invest in a successful startup, your return won't come until 6-10 years from now when the startup makes an exit (IPO or acquisition).

If you have the money, and the time to spare, angel investing is one of the most impactful things you can do. You give the opportunity to very driven people to solve a problem they've identified. You help create growth and your money is spent creating jobs and solving problems.

While most startups will fail, the few that make it promise outsized returns after multiple years. It's not about looking at the risks and minimizing them, angel investors see the potential and ask "What if it works? How large can it be?" If you pick a unicorn, you can make millions of a $25k check.

Dimensions to consider when making an assessment

As an angel investor, I enter deals at the earliest stage. When evaluating startups we need to look at the product, the roadmap, and the vision, rather than user numbers. For SaaS products, we often ask, "Will this replace spreadsheets or an entire department?" The latter is more interesting.

For consumer products, we take the product for a spin. If we're not in the target audience I share with my 20-year-old cousin, my 5-year-old son, or someone else who's in the right target group. Their feedback is very important.

I ask myself: "What are people using today to solve the same problem?" "What substitutes are they using? Pen and paper? Spreadsheets? WhatsApp groups?" "How much better is this product at solving their problem?" "Will users change habits?" Changing habits is hard, very hard.

I also consider who else might be trying to solve the same problem. I check @appannie, search on @ProductHunt, and more. Other teams are likely onto it too, what makes the team you're evaluating stand out? Why will they win? I look at the team's professional background, the founder affinity and skill sets, the team-product-market fit, and team execution.

Look at the startup graveyard. Who has tried this in the past? Why did they fail? What is this team doing differently this time around? Have they done their graveyard, substitutes, and competitive analysis themselves?

Can this company be worth 100x what it is today within a few years from now?

What's the potential? Can this company be worth 100x what it is today within a few years from now? Is the market big enough, or do we think they can drastically grow the market? How much is being spent on substitutes today? Can it grow exponentially?

While there may not be many users at this point, there could be a few. A few very engaged users are way more impressive than 10,000 downloads. Getting downloads is easy, having engaged users early on is really, really hard and shows that you're onto something.

This is an op-ed by Lisa Enckell. All views and opinions expressed are her own and should not be used as investment advice. In making an investment decision, investors must rely on their own examination of the Company and the terms of the Investment including the merits and risks involved.

Curious to learn more about how Antler addresses the major risks of startups failing? Head over to our website to read about how the global Antler platform enables exceptional people and teams to build the defining companies of tomorrow, and then supports them to raise subsequent funding rounds leveraging deep relationships with top international VCs and angel investors.

Subscribe to our newsletter

Get the latest news and views from Antler’s global community

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Must-read articles from Antler

Browse our collection of founder stories, industry insights and latest startup successes from Antler Australia

See articles
Insights
5 min read
The 2022 Benelux Unicorn Founder Roadmap: How to build unicorns in Benelux

As everyone anticipates the next wave of ultra-successful companies in Benelux, what does it take to get there? What do the successful founders of Benelux unicorns look like? This report is an in-depth look at the Benelux startup ecosystem and its brightest stars. And above all, it is for anyone who is helping build the next 50 unicorns in Benelux.

Insights
5 min read
The Angle: Why the long-term view is the hard but right one

The Angle is a new content series from Antler, featuring perspectives from our team members on the biggest events and trends impacting founders and early-stage investors today. Every article is that person's unique angle on a hot topic—what they see from their vantage point in one of our 25 offices around the globe—not Antler's stance. In our first edition, Jeff Becker draws lessons from the demise of FTX and turbulent tech moments in recent years. This article first appeared in Jeff's Monday Morning Meeting on Substack.

Founder Stories
5 min read
Jamie Bubb: The tech marketing venture developer connecting brands and content creators

Our new content series—"It All Starts with People"—delves into the passions, motivations, and vision of the exceptional founders we have the privilege of partnering wtih around the world. In our second spotlight, we sat down with Jamie Bubb, co-founder of Twirl, a remote content studio powered by top-quality creators that helps brands scale their content engines rapidly and cost-effectively.

Insights
5 min read
Venture investing in the downturn

We are living two simultaneous realities: the uncertainty of the current downturn and the unstoppable wave of innovation disrupting every industry. Against this backdrop, Antler's Kevin Brennan shares perspectives on assessing your position in venture capital for the rest of 2022 and into 2023. Might 2023 be the best vintage for the coming decade?

Founder Stories
5 min read
Emilia Theye: The psychologist using AI to democratize access to mental health solutions

Antler was founded on the belief that people innovating is the key to building a better future. To honor them, we are launching a new content series—”It All Starts with People”—spotlighting the exceptional founders we have the privilege of partnering with around the world. Each story is a window into their passions, motivations, and vision—the reasons they are building and the positive dent they are aiming to make on the world.

In our first spotlight, we sat down with Emilia Theye, the co-founder of clare&me—a mental health app that uses language-based AI to develop an innovative approach to virtual self-help.

News
5 min read
Backing founders from day zero to greatness

Today we are sharing our new brand that reflects that commitment and the reason Antler exists: to stand behind our founders from day zero and to keep backing them on their paths to greatness.

Founder Stories
5 min read
Seven ways founders can prioritize mental well-being as they build

Founders are the life force of the startup ecosystem. They give their all, betting on their seemingly “crazy” convictions and executing on abstract ideas that can potentially make our lives and work easier, faster, healthier, and better optimized.

But sometimes they do this to the detriment of their health. Being a founder means being beholden to customers, employees, and investors while balancing personal life. Often founders trade their stable, well-paying jobs to prioritize the restless inquisitivity of their mind. In the quest to answer the question “what if?”, they sometimes sacrifice their mental and physical health, only realizing the effects on their state of mind once they have impacted their ability to function as a leader. We have also seen how the mental pressure on founders can cause distress to those who depend on them for their livelihood and direction.

Insights
5 min read
A fresh take on early-stage VC: Harvard Business School publishes a case study on Antler

Harvard Business School (HBS) recently published a case study about Antler’s fresh approach to early-stage venture capital. Antler Co-Founder Fridtjof Berge shares thoughts on how the case sparks discussion about the best ways to identify and support great people anywhere on earth.